Singapore High Court sets aside international award against Lesotho

This is the first case in Singapore in which a party sought to set aside an investor-state arbitral award on the merits, and the decision "engages intriguing questions of arbitral and international investment law which have yet to be considered by a Singapore court", Justice Kannan Ramesh said.

The investors claimed that their investments, namely leases to mine territories in Lesotho, were unlawfully expropriated by the Kingdom between 1991 and 1995. After unsuccessful actions in the Kingdom’s domestic courts, they began proceedings in the Southern African Development Community (SADC) tribunal in 2009, alleging that the Kingdom had breached its obligations under the SADC treaty by wrongfully expropriating the mining leases. However, the SADC tribunal was dissolved by resolution of the SADC summit before it could determine the claim.

The investors commenced international arbitration proceedings against the Kingdom in 2012, on the basis that Lesotho had breached its obligations by voting with other African countries to dissolve the SADC tribunal without providing alternative means for the claim to be heard.

This arbitration was administered by an ad hoc tribunal constituted under the auspices of the Permanent Court of Arbitration (PCA) tribunal, which elected Singapore as the seat of arbitration.

The PCA tribunal determined that the Kingdom of Lesotho had violated its international obligations by voting with the other African nations to dissolve the SADC tribunal while the claim was before it. The Kingdom of Lesotho applied to set this award aside.

The Court agreed with Lesotho and set aside the award on the basis that the PCA tribunal lacked jurisdiction, and that its decision exceeded the scope of the submission to arbitration.

In determining the issue, the Court clarified that its power to adjudicate upon the jurisdictional challenges mounted by the Kingdom of Lesotho in this case was derived from the Model Law read with one section of the International Arbitration Act (IAA). It also set out the applicable law and principles of treaty interpretation, approving the application of the Vienna Convention on the Law of Treaties, and stressing the importance of taking into account the object and purpose of these instruments in light of both the potential interests of investors as well as those of the member states.

At the conclusion of the judgment, the Court raised a query as to whether it has the jurisdiction to make an order as to costs of the arbitration where it sets aside an award under the Model Law instead of the IAA. The Court has sought further arguments from counsel on the issue.